L.A. Cannabis Industry Demands Full Business Licensing from City Council

The nation’s largest weed sector is ready to leave the grey market after years of fearing legal prosecution.

On the steps of L.A. City Hall on Tuesday, dozens of cannabis industry activists gathered to fight for local licensing. At face value, the question at hand is simple, so simple some wonder why it's even a question: in November, California citizens passed Proposition 64 to legalize marijuana — and an overwhelming majority of Angelenos voted for it. Then in March, 80 percent of L.A. voters passed Measure M, authorizing the city to establish a licensing, taxation, and regulatory structure for cannabis businesses. After that, cannabis industry representatives and concerned citizens gave input over months in public hearings as to how the city should regulate legal pot, repeatedly advocating for comprehensive permitting. Yet despite all those efforts, the latest draft regulations to come from the city council proposed to grant "limited immunity" to pot businesses, instead of issuing actual licenses.

All photos by the author.

L.A. is the only jurisdiction in any canna-legal state where a “limited immunity” model for businesses has even been considered. As the largest market in the cannabis industry — anticipating $700 million in total sales in the first year — L.A. is a leader for other localities, but the proposed regulations could spell failure for its own sector. "If L.A. adopted [limited immunity], other jurisdictions could move in that direction, too," says Elizabeth Ashford, communications director for the Los Angeles Cannabis Task Force (LACTF). "If L.A. fails, the state market fails. You can't have a portion of the market this size and have it not work."

Following the afternoon rally, led by a coalition of organizations including United Cannabis Business Association (UCBA), UCFW Local 770 — a union which has successfully organized workers in L.A.’s cannabis sector — and LACTF, cannabis industry folk lined up en masse to give public comment during a packed session of the city council’s Rules Committee. Most spoke passionately in favor of licensing, among other issues like social equity and a local banking system for the cannabis industry. Even medical marijuana patients came to give testimony, speaking to the miracles of cannabis treatments, asking city officials to ensure the health of the industry; some however, feared that the cost of getting licensed would hike up the prices of medical marijuana. "If the prices go up, I can't afford to live," testified cancer patient Jenny Pagliaro. Yet, without licensing, many in the cannabis industry might not be able to survive, either.

"We want stability, that's what we've been dying to have all these years," says Aaron Justis, CEO of L.A. dispensary Buds & Roses and board member of the Greater Los Angeles Collective Alliance. "Limited immunity is too unstable. We can be shut down at any time; that's no way to run a business. We'd have to prove we're following all these rules, and they'd say, 'Okay, you have immunity, you can stay open,' until the next time they come to shut you down. Limited immunity is not an authorization to operate."

What limited immunity is, however, has yet to be clearly defined — that's the problem, and that's what distinguishes it from a discrete, legitimate license. Presumably, limited immunity would give businesses a defense to alleged violations, explains attorney Michael Chernis, who represents clients in the cannabis industry.

"Anything short of an absolute permit or license puts [cannabis businesses] in a vulnerable position," says Chernis. Limited immunity would force stakeholders to constantly prove they're running kosher business operations, whereas if they were licensed, they would only be scrutinized if they violated code, he explains. "It flips around the presumption and burdens and creates a dynamic where the businesses are always on the defense. That's not a way to run a business — especially one that requires hundreds of thousands, if not millions, of dollars of investment."

In addition to legal risk, there are also a number of practical problems with limited immunity, Chernis adds, such as obtaining insurance or opening a bank account with only a certificate of compliance. "The city is moving incrementally beyond the era of prohibition, but this is not a step forward, it's a step sideways," he says. "We need to deal with the practical realities of what it takes to start up these businesses and stop treating them like drug dealers. If you want to take their taxes, treat them as partners and not like second-class citizens."

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Theoretically, there may be some rationale in favor of limited immunity if exposure to federal liability is a concern. With prohibitionist Attorney General Jeff Sessions in office, some fear the cannabis industry might be at risk of a crackdown. Technically, city workers could be held legally responsible if they grant licenses to cannabis businesses. "But that risk is so miniscule and remote that it's not worth discussing," Chernis says. "L.A. doesn't need to be an island here doing its own thing, different from what every other city and county in the state is doing. Why are city workers more vulnerable than state workers? They're not, it's bullshit." Moreover, if the feds do attack California's industry, the state government has already a expressed willingness to defend it.

Rigo Valdez (left), director of organizing for UFCW Local 770.

"We're not just saying to give folks licensing, we're [also] saying to support people's work so they'll be able to succeed," says Rigo Valdez, director of organizing for UFCW Local 770. He speculates that if the city council decides to move forward in licensing, the first set of licenses will likely go to the 135 dispensaries that are already compliant with Proposition D—the city’s current set of medical cannabis regulations. "They've been doing this kind of work already and are ready to come up above ground," he says. But social equity is another large piece of the puzzle. "Social equity gives opportunity to folks who were most harmed by the War on Drugs, especially the Latino community and the African American community," says Valdez. "And there has to be an ability for women to be a part of this industry."

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Tangibly speaking, social equity could come in the form of incubation, networking, financial aid, or education on how to run a cannabis business. Cannabis workers should also be able to unionize, and fight to be paid more than 25 cents above minimum wage, Valdez adds. "Here in L.A., we feel that every business that has more than ten workers should have a labor peace agreement." The idea is for the cannabis industry to be a both lucrative and humane industry for its employees. That also includes a banking system to keep the industry's finances secure.

"If we don't have proper banking, we have an increased risk of people around with cash and working us into a grey market," said Jerred Kiloh, president of UCBA and owner of Higher Path dispensary, during Tuesday's press conference.

Compliant dispensaries, cultivators, manufacturers, testing services, deliveries and more all deserve the opportunity to operate legally, safely, and securely, he says, but that relies on licensing. In about a month, the city council will decide. "We need to make sure licenses are the cornerstone for our businesses," says Kiloh. "We're looking at one of the largest economies when it comes to cannabis. The entire world is looking at us to make sure we're making good decisions and policy."

Jerred Kiloh, president of the United Cannabis Business Association.

By the end of Tuesday’s hearing, it appeared that the industry’s demand for a real canna-business licensing structure could very well pay off. After listening to numerous comments denouncing the draft regulations, City Council President Herb Wesson called for the committee to vote on whether it recommended the development of a “permanent licensing system”; its members approved unanimously. Wesson also announced they would “aggressively pursue the concept of establishing a Los Angeles municipal bank so we would be able to [serve] your industry,” which was met with fervent applause. The next step is for the full 15-member city council to approve final regulations for L.A.’s cannabis industry, with enough time for implementation in advance of the intended start date for recreational sales on January 1, 2018. If those rules don’t ultimately include a plan for full business licensing, L.A. could become a large and unusual outlier in California’s newly legal cannabis economy, and if the size of the audience at Tuesday’s hearing is any indicator, many Angelenos won’t be happy.

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published on August 18, 2017

Madison Margolin

Madison is a New York/Los Angeles-based writer who specializes in cannabis coverage. Her work has been featured in Playboy, the LA Weekly, and other publications.